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Something different for you today. You know how I like to talk a blue streak about all the trading psychology. So now I’m going to do a little bit of a case study. Let’s just say that you have the following situation. Up here you have an account that started with a hundred thousand dollars and currently you carry about $30,000 in cash. You’ve got some positions here. Those are the market values. There’s $27k. I don’t know if you can see the point or you can’t, but there’s $27k, there’s $35k. That’s what you have. That’s the current market value. Over here, you see what you have in unrealized gains. You have $7,000 and $5,000 respectively. So $12k of the $92k are unrealized gains from your exceptional trades with ABC and RST. The rest, you got stopped out for losses. So although you’re up on these two positions, your account is still down 8%.
So the question then is what do you do? Market’s kind of choppy. There’s not a lot of follow through. It’s where are we? We are after 4th of July, we’re seeing pressure about the health of President Biden and everybody who’s kind of given him unsolicited advice about what he ought to do, both for himself, for the party, for the country. So everyone’s got their reason on. They say unsolicited advice is a form of criticism. And so with all the uncertainty out there, here we are. What are you going to do with this account? And if you get a new signal and you tie up that $30k, where do you go from here? Now the market looks toppy. Both the charts and ABC and RST I’ll tell you are looking at multi-year highs, but there’s not a lot of follow through. So this is a situation that you might find yourself in very, very frequently over the course of your career.
I know I did it. I actually do. In the training, we have case study where it was much worse. I had a 401k rollover account from when my first CTA was acquired in a man inquisition kind of a deal. And I immediately started contributing to the firm’s 401k. They had matching. So I rolled it out, it was like $50k in it and I was trading it very, very aggressively. I had 17 years experience at the time. This is all before inner voice trading was written, but it’s not in the book. I only wrote about my failures in the book. By the way. You can get the free audio book version, click the link in the description. And so I find myself trading like a whopping 2% risk unit at the time, maybe in certain circumstances, 5%, 10% risk units. But I knew I was doing, and so I found myself in a situation where I was making money in certain names, but my overall account balance was down 14%. So when you look at this situation, your account’s down 8%. What would you do? What feelings are going through your body? You have two names. You’ve puked at all your losers. So you’ve done that right now you have two positions that are up. You can figure out what the rates of return are on that money. You’re carrying some cash. So it’s not like you have to do anything, but think about it. And what would you do? Knowing again that $12,000 of the $92k are unrealized gains. What would happen if that went down to $11k, $10k, $9k and you weren’t getting any new ideas? What’s your plan? This is the kind of stuff that you need to have worked out long before you’re actually in the situation because it’s not something that you can do or you want to have to do on the fly. It’s always better to, that’s what I’ve always said from the art of war. The victorious warrior first wins then seeks battle. It’s far better to know what you’re going to do in a certain situation before you even get there. Now for this account, it’s a hypothetical account. You’re taking the risk home overnight over the weekend. Hope that helps.

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The post Case Study: How would you handle this? appeared first on MartinKronicle.